Interest Accounts

They had a thing about it on the news. They said that if you have a small sum of money as five hundred dollars, you can put it in an interest account and you can save money over the next two years. Is this true? Do they work? Are there any defects?

interest bearing accounts pay a percentage of the amount on deposit. If you put $ 500 in an account that pays interest on April 3%, he will receive $ 15 in one year. The $ 15 is taxable, ie, you owe tax on it because it is income. The tax rate is based on your level of annual income. You do not (as stated by someone else) pay taxes on the total money on deposit, if you are required to pay taxes on income earned money when initially. The interest you receive is more, the taxable income.

On the question of "do their job," it depends on what it meant. Yes, they return interest, as agreed (assuming a legitimate investment account), but an interest bearing account is unlikely to follow this which is offset by inflation plus taxes.

For example, if you put $ 1,000 into an interest bearing account that pays 3%, you have $ 1.030 a year later. You owe tax on $ 30, say, 20% (depends on total income), so that $ 6.00 and it leaves you with $ 1,024. You have twenty-four dollars in advance - but hold the phone.

Now, say that the price of items you tend to buy - food, clothing, gas for the car, etc. - rose 2.5%. That cost was $ 1,000 last year now costs $ 1,025 - $ 1,000 and your in the interest bearing account is only $ 1,024 after taxes, so you can not buy as much now as you could with the amount original. Even though he worked in the sense that you paid interest to keep money on deposit and you have a balance higher than what you started with, the deposit actually declined in purchasing power .